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Air India to welcome partial foreign investment to curb the financial crisis

Foreign airlines welcomed the government’s decision to allow them own a piece of Air India. It is also said that their investments will depend on the details of the policy.

The Central Cabinet recently removed a restriction on foreign investment in Air India, a decision that government officials and aviation industry executives said would give a boost to the efforts to sell the debt-laden and lossmaking airline.

Keeping foreign carriers away wouldn’t have generated the desired interest in Air India, said a senior aviation ministry official, who spoke on the condition of anonymity. “We are certain that the interest in Air India will increase and we will get much more competitive bids for Air India.”

India’s foreign direct investment rules already allowed foreign airlines to own as much as 49% of local carriers, but there was a provision to keep Air India out of such investment. While the government now removed that restriction, it limited the total foreign investment in Air India at 49%, which will keep its control with Indians. While the FDI can be 100% in private airlines with a 49% cap on the ownership by foreign carriers, in Air India, the 49% investment can be from an airline or other investors.

A senior executive at a foreign carrier said a large number of overseas airlines would now be interested in Air India. “There are two primary reasons for it — one is that the government is likely to take away a major part of the debt from Air India, making it lucrative financially; and second is the access to the Indian market that an airline gets by acquiring Air India,” this executive said, speaking on the condition of anonymity. “India is a huge market and no airline would want to miss an opportunity to get access to the Indian market.”

But they will be interested only if the government stays completely off Air India, he added.

Kapil Kaul, the chief executive at consultancy firm Centre for Asia Pacific Aviation in India, also said the conditions that the government would attach with the sale would determine the level of participation from foreign bidders. “We see 4-6 serious bids for AI subject to bid conditions,” he said.

Executives at local airlines said they were expecting the rule change. “Allowing foreign carriers to bid makes sense,” said one of them.

But some analysts said this was just one of many steps required to find a taker for the state-run airline.

“This is a good step albeit a small step,” said Amrit Pandurangi, a former partner at Deloitte. “And it’s definitely not a deal maker. A deal maker would be greater amount of clarity on the airline’s financials, especially its working capital debt. And it’s for the people. What happens to them? What are the pension plans? The costs involved. That’s the elephant in the room that needs to be addressed,” he said. Mark Martin of Dubai-headquartered Martin Consulting called the government move “a rebuttal” to a parliamentary panel’s advice to hold the divestment plan.

The Parliamentary Standing Committee on Transport, Tourism and Culture in a draft report had advised the government to look at “an alternative to disinvestment of our national carrier which is our national pride”. It would be “lopsided” to evaluate Air India solely from a business viewpoint, as the Niti Aayog had done, the panel said. The committee is headed by the All India Trinamool Congress’ Rajya Sabha member Derek O’ Brien.

“It is also the government is trying to save face as clearly Air India’s sale hasn’t garnered the interest the government expected. One just hopes the government won’t finally go in for a distress sale,” Martin added.

Meanwhile, the Congress party said it had made a “cautious decision” to keep the national carrier out of bounds for foreign airlines when the government headed by it allowed FDI in the sector. “There are routes where only Air India goes. What happens to them now? What happens to the assets worth crores of Air India? We will raise the matter in Parliament,” Congress leader Anand Sharma said.

Source: Economic Times


Cochin Herald

All stories by: Cochin Herald